Why NexLiving Communities' (CVE:NXLV) Soft Earnings Are Just The Beginning Of Its Problems

NexLiving Communities Inc.'s (CVE:NXLV) stock wasn't much affected by its recent lackluster earnings numbers. We did some analysis and found some concerning details beneath the statutory profit number.

See our latest analysis for NexLiving Communities

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. NexLiving Communities expanded the number of shares on issue by 13% over the last year. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out NexLiving Communities' historical EPS growth by clicking on this link.

A Look At The Impact Of NexLiving Communities' Dilution On Its Earnings Per Share (EPS)

Three years ago, NexLiving Communities lost money. And even focusing only on the last twelve months, we see profit is down 20%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 50% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if NexLiving Communities' earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that NexLiving Communities' profit was boosted by unusual items worth CA$6.6m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. We can see that NexLiving Communities' positive unusual items were quite significant relative to its profit in the year to December 2022. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On NexLiving Communities' Profit Performance

In its last report NexLiving Communities benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue NexLiving Communities' profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into NexLiving Communities, you'd also look into what risks it is currently facing. To that end, you should learn about the 6 warning signs we've spotted with NexLiving Communities (including 2 which don't sit too well with us).

Our examination of NexLiving Communities has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.